Lenders Give Naresh Goyal Till Month-End To Submit Revival Plan For Jet Airways
Lenders to India’s second-largest carrier Jet Airways India Ltd. want promoter Naresh Goyal to act fast and submit a formal revival plan after the company defaulted on loan repayments on Dec. 31, according to two people involved in the negotiations.
The plan is expected to be submitted by Jan. 21 as the account would be more than 30 days overdue by then, the people, part of the talks between the lending consortium and Goyal, said. Both spoke on the condition of anonymity as the talks are private.
Lenders met earlier this week to discuss the recent default by Jet Airways, they said. At the meeting, banks informed the company that the revival plan must include a proposal for fresh equity infusion and monetisation of assets owned by the airline.
The company, on its part, sought an additional working capital loan of Rs 1,500 crore to pay vendors. The banks will meet next week to discuss this demand but are yet to approve it. On Friday, Reuters reported that the airline is close to reaching a deal for interim financing with lead lender State Bank of India. BloombergQuint could not independently verify this.
Jet Airways owed banks Rs 8,414 crore as of March last year, according to its annual report. The airline, which was in exploratory talks with the Tata Group to sell a controlling stake, lost nearly 70 percent of its market value in 2018 as it faced a crippling cash crunch. Higher fuel prices and inability to increase fares in India’s competitive market led to three straight quarters of losses and forced it to delay salaries.
The banks are now worried about these loans turning sour.
A spokesperson for the airline said that as a company, Jet Airways remains optimistic about outcomes over discussions with its lenders. “The talks are progressing well and we hope to reach a positive resolution at the earliest.”
The lenders, led by State Bank of India, informed the promoter that the revival plan must be submitted within three weeks of the date of default since it would enter the special mention account category of loan classification after 30 days of remaining in default. According to the people cited earlier, if there is no plan, or if the plan submitted is not accepted before hitting that deadline, banks will have to initiate some resolution action themselves.
Under the Reserve Bank of India’s loan classification norms, an account falls in special mention account-1 category if it’s in default for 30-60 days, in SMA-2 if the borrower fails to repay for 60-90 days and a non-performing asset beyond 90 days.
A Jet Airways spokesperson didn’t respond to BloombergQuint’s emailed queries. Arijit Basu, managing director at SBI, said the lender doesn’t comment on specific borrowers.
More Repayments Due
The carrier informed stock exchanges on Jan. 1 that it had defaulted on loan repayments to lenders due on Dec. 31. It said that the default was due to a “temporary cash-flow mismatch” and that it had engaged with the lenders regarding this.
Also read: Can A Fund Infusion Revive Jet Airways?
The airline has been suffering from a funding crunch because of which it has already delayed payments to employees and vendors, according to a note by ratings agency ICRA Ltd. The agency downgraded multiple liabilities of the carrier to default on Jan. 2. ICRA said the rating downgrade reflected the company’s large debt repayments due:
- December 2018 to March 2019: Rs 1,700 crore.
- FY2020: Rs 2,444.5 crore.
- FY2021: Rs 2,167.9 crore.
Lenders are wary of taking Jet Airways to the National Company Law Tribunal for insolvency proceedings right away since they are not sure if the value of the asset will be maintained under the process, the people cited earlier said.
They said the promoters could either arrange additional funds themselves or convince partner Etihad Airways PJSC to buy more stake in the company, diluting the promoter’s shareholding. Goyal owns 51 percent in the company, while Etihad controls 24 percent.
Lenders are also waiting for a report from Jet Airways’ forensic audit being conducted by global consultancy firm EY. It’s not known when the report is due.
The representatives at Jet Airways offered to securitise the revenue from ticket sales against the loans owed to the lenders, according to the first of the two people cited earlier. But lenders felt that the revenues wouldn't be enough to cover for the entire outstanding amount. Besides, the company would need to submit a plan where it commits to the viability of the carrier in the event that ticket revenues are securitised to the lenders.
To be sure, the option to securitise the ticket revenues is still on the table and a decision would be taken after reviewing the plan, the first person cited earlier said.